Wealth Tips

Tax Planning Through Mutual Funds In India

Tax planning in India with mutual funds offers various avenues for reducing tax liabilities and achieving financial goals. Additionally, understanding tax-saving mutual funds (ELSS) with their three-year lock-in period and equity exposure can help individuals make informed choices for long-term wealth growth.Consulting a financial planner or tax advisor is crucial in navigating dynamic tax laws and investment strategies.
April 18, 2024
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Introduction:

In India, tax planning with mutual funds can be a useful tactic for minimizing your tax liability and attaining your financial objectives. In India, mutual funds can be used in the following ways for tax planning:

1. ELSSs, or equity-linked savings plans: 

Under Section 80C of the Income Tax Act, ELSS mutual funds are created particularly for tax-saving purposes.

A financial year's worth of investments in ELSS funds are eligible for a deduction of up to 1.5 lakh from your taxable income.

The shortest lock-in period of all Section 80C tax-saving investment alternatives is 3 years, which applies to ELSS funds.

2. SIP: Systematic Investment Plan

To spread out your investments over time and take advantage of rupee-cost averaging, you can employ SIPs in equities mutual funds.

SIP investments offer the possibility of capital gains with a favorable tax treatment, which can be used for long-term objectives.

3. Debt Mutual Funds to Reduce Taxes

For short- to medium-term financial goals, debt mutual funds may be a tax-effective approach to achieve steady returns.

Gains from debt mutual funds that have been held for longer than three years are considered long-term capital gains and are subject to a 20% tax rate with benefits for indexation, which frequently results in a lesser tax

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